Prorating Costs Relating to Approved APD Expenditures
June 17, 1988
Subj: Prorating Costs Relating to Approved Automated Data
Processing (ADP) Planning and Development Expenditures
For Purposes of Calculating Incentive Payments.
June 17, 1988
TO:STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS
SUBJECT:Prorating Costs Relating to Approved Automated Data Processing (ADP) Planning and Development Expenditures For Purposes of Calculating Incentive Payments.
REFERENCES:45 CFR Part 95, Subpart G; 302.85; and Part 307
BACKGROUND:Many States are in the process of developing comprehensive statewide automated child support enforcement systems which are eligible for enhanced funding under 45 CFR 302.85 and Part 307. Questions have arisen regarding the treatment of expenditures incurred in the planning and development of these systems when calculating incentive payments. States have expressed concern that emphasis by OCSE on the accelerated development of ADP systems over a 2 to 3 year period will result in a concentration of expenditures which will significantly lower the incentive payments for which the State would otherwise be eligible, thereby inhibiting States from operating the most effective program. State IV-D administrators have emphasized that, for purposes of calculating incentives, this one-time investment for improving the State's facilities reflects extraordinary costs which should be expensed over a period longer than the period in which they were incurred because they are not related to normal ongoing program operating expenditures.
States have previously argued in comments on the incentive regulations implementing requirements of the 1984 Child Support Enforcement Amendments (50FR 19638, May 9, 1985), that expenditures eligible for 90 percent Federal funding should be excluded from the collection-to-expenditures ratio when calculating incentives. OCSE responded at that time that the revised section 458(c) of the Social Security Act did not specifically authorize the exclusion of expenditures which qualify for 90 percent funding. However, the issue at hand centers on the application of costs over a period longer than the period in which they were incurred for purposes of calculating incentive payments.
In submitting claims for Federal financial participation, States must depreciate the cost of ADP equipment (hardware) having an acquisition cost of over $25,000 over its useful life, as set forth at 45 CFR Part 95, Subpart G, unless the State receives an exemption in accordance with õ95.641 to claim equipment costs in the period acquired. Therefore, this instruction addresses only the prorating of planning and development costs of an ADP system eligible for 90 percent Federal finding in calculating incentives, or total costs where an exemption has been granted for equipment costs.
Current estimates are that planning and development costs (system design, software development, programing, training, etc.) constitute from 40 to 60 percent of total system costs. OCSE believes that it is not in the best interest of the Child Support Enforcement program to require States to include ADP costs for calculating incentives in such a way that incentives are significantly reduced during the years that the State is establishing enhanced ADP systems.
CONTENT:OCSE will allow a State, for purposes of calculating incentive payments, to prorate planning and development costs associated with a system eligible for 90 percent Federal funding under õõ302.85 and 307.10 over a five-year period using a straight-line method. Total costs will be included in cases where a State has been granted an exemption under õ95.641 to claim hardware costs in the period acquired. Total costs must be expensed in no more than seven years. This instruction does not affect how these expenditures are claimed currently for purposes of Federal reimbursement.
Beginning with Fiscal Year 1988, States incurring costs relating to computerized support enforcementsystems funded at the enhanced FFP rate under 45 CFR Part 307 may elect to submit a supplemental schedule to their advance planning document. Submission of this supplemental schedule will signify the State's intent to apply planning and development costs on a five-year straight line basis. This schedule will apply one-fifth of the planning and development costs projected to be expended in each of the project's first three years over the subsequent five years. The total costs reflected in the schedule must be expensed in no more than seven years. The proration of each year's costs over a five-year period will only be used to calculate the State's annual cost-effectiveness ratio and the resulting incentive payments. States must continue to claim actual expenditures on line 6 of the Form OCSE-41 for Federal reimbursement at the enhanced FFP rate. The State must signify that it is electing to apply costs over the five-year period for purposes of calculating incentives by typing "Note" above the entry on line 6 and attaching a schedule showing the amount prorated for the quarter.
Assume a State intends to expend $2 million on approved ADP planning and development costs over a three year period, with $1,000,000 expended the first year, and $500,000 each in years two and three. For purposes of calculating incentives, the costs would be prorated as follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
200,000 200,000 200,000 200,000 200,000
100,000 100,000 100,000 100,000 100,000
100,000 100,000 100,000 100,000 100,000
200,000 300,000 400,000 400,000 400,000 200,000 100,000
INQUIRIES TO:OCSE Regional Representatives
Wayne A. Stanton